Thu 24 Oct 2013 @ 01:45 AM


Evil Rich Corporations and Poverty Stricken Employees

I've seen a couple of comments on Twitter in the last day or two regarding just how many BILLIONS of dollars in profit are made by large mega-corporations and just how little money their employees earn. Many of these employees earn so little that they're eligible for various forms of public assistance. The argument is that if these companies would just pay their employees a living wage they wouldn't NEED public assistance. Here are the two examples I've seen that drove me to write this post:

  • Walmart - $16,999,000,000 ($17 billion)
  • McDonald's - $5,464,800,000 ($5.5 billion)

With this much profit (not revenue, just profit), there is no excuse why their poor exploited workers should be earning so little money and be taking advantage of public assistance! In fact, it's not fair that these companies make any profit! Let's take all the money and split it up among all their employees! Make those corporations pay!

Wait a minute. Just how many people do these companies employ?

  • Walmart - 2,200,000 (2.2 million)
  • McDonald's - 1,700,000 (1.7 million)

Whoa! That's a lot of people! Still, millions of employees, billions of dollars, it'll all work out, right?

  • Walmart - $7,726.81 average profit per employee (we'll allow Walmart keep the remaining $18,000 because we're not heartless)
  • McDonald's - $3,214.58 average profit per employee (McDonald's gets to keep a whopping $14,000 for their troubles)

Oh. So if we confiscate virtually every penny of profit from these companies, the employees will be making a little more. Okay, I know, $7,726.81 extra per year per Walmart employee would be a nice raise. I sure wouldn't turn my nose up at it. Mind you, the employees won't get that much of a raise:

  • First of all, employers have to pay half of the payroll taxes (social security & medicare), so the raise in gross pay to the employee is down to $7,177.71 right off the bat.
  • Next, the employee has to pay their share of the payroll taxes: down to $6,628.61.
  • At this level of income, based on average Walmart employee wages, the federal government is going to take another 15% in federal income tax on top of the 15.3% they've already taken in federal payroll taxes. The net take home pay at this point is all the way down to $5,551.95.
  • State income taxes are a lot trickier to calculate. The best number I can find claims an average state income tax rate of 4.49%. Down to $5,229.69.
  • Also tricky to calculate are state and local sales tax rates. 9.6% seems to be the average according to some quick Google searching. This one isn't quite as bad as some of the others, as sales taxes are only charged on net income, not adjusted gross income. Still, it brings the actual buying power of the raise all the way down to $4,727.64

Yes, having an extra $4,727.64 to help make ends meet would be a nice thing. It could have been more, but government takes the first $3,000 of that money! And we are only able to give employees this raise if, and only if, we confiscate all the profit and divide it equally among all employees.

These calculations admittedly don't take some things into account (because I just don't have time to do the rigorous research; the above numbers are quick calculations based on Google searches). Some of those things are:

  • I didn't take into account that, if Walmart did do this, it would not have to pay somewhere in the neighborhood of $5,000,000,000 ($5 billion) in taxes, taking money away from government coffers, but giving even more money to the employees.
  • The employees would be paying about $6.6 billion in taxes they didn't pay previously. Even more after giving them an extra $5 billion of income. It might get up to about $8.5 billion or so for government programs.
  • The government would not need to pay as much in public assistance thanks to the extra money people get to take home.
  • My calculations assume that all Walmart employees live in the US, and that all the income from all over the world would go to US employees, as I don't have better numbers easily accessible.
  • Let's not forget: The (Un)Affordable Care Act (aka Obamacare) kicks in this next year. The average person may very well spend that entire raise (and then some) on health insurance. They'll be worse off than they were before (unless of course they have some major medical expenses; then they'll only need to come up with another $12,700 potentially before their insurance really kicks in). This does not take into account the amount of taxpayer subsidy that will help them pay their premiums, but that money will come from whatever extra taxes they're paying anyway. Well, taxes and lots of borrowing.
  • Walmart has between three and four billion shares of stock issued. They own some, employees own some, private investors own some, managed funds own some. That obscene $17B profit? Somewhere between $4 and $6 per share. That is money that goes to real people like you and me from investments, retirement funds, and so on. Taking it all away from Walmart wouldn't really hurt the company. It would hurt share holders, not all of whom are rich fat cats. McDonald's numbers would be comparable (about one billion shares with profits of $5.5B is also in that $4 to $6 per share range).
  • Undoubtedly there are other things I'm not considering and am too tired to think of at 1:52am

All the above calculations are just for Walmart. If we assume the same percentage of spendable take home pay for McDonald's employees, they only get to keep about $2,000. Less than a dollar an hour raise for a full time employee.

I agree that it would be great if everyone could make more money. I'm not saying that these mega-corporations can't afford to give employees more. I am saying that even if they give away all profits to their employees, the extra money is not going to be life changing. They'll still be right around (or significantly under) the poverty line.

What I'm really saying is that people who claim we could fix all the ills of poor, unskilled, near minimum wage workers "if we just diverted money from evil big business" have not thought this through critically. If they had, they would realize that the way most mega-corporations make money is a little here and a little there, just like small companies. If they didn't have millions of employees, they wouldn't be able to make that supposedly obscene profit. Instead of one company paying employees relatively little and making billions, we'd theoretically have lots of little companies paying employees relatively little and making thousands or millions. Or nothing. A third or so of businesses fail in their first two years.

Big numbers divided by slightly smaller big numbers are pretty small numbers in the grand scheme of things. The next time you hear or read a comment to the effect of "the plight of workers would be so much better if businesses just paid more", I hope you'll correct it.

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